Friday, September 11, 2015

No. 115: Annuity Factoring Companies in the Crosshairs

The August 2011 and October 2011 issues of The Insurance Forum contain major articles critical of factoring companies that pay cash to annuitants and in exchange receive the annuitants' annuity payments. The articles generated almost no feedback. I thought perhaps I was whistling in the wind, but a recent lawsuit causes me to think otherwise.

The CFPB/DFS Complaint
On August 20, 2015, the federal Consumer Financial Protection Bureau (CFPB) and the acting superintendent of the New York State Department of Financial Services (DFS) filed a lawsuit against two annuity factoring companies and three individuals. The plaintiffs are represented by several CFPB attorneys and an assistant attorney general of New York. The case was assigned to U.S. District Judge Josephine L. Staton and Magistrate Judge Jay C. Gandhi. (See CFPB v. Pension Funding, U.S. District Court, Central District of California, Case No. 8:15-cv-1329.)

Defendants Pension Funding LLC and Pension Income LLC are related companies that extend consumer credit, service consumer loans, and transmit money in connection with their loan business. They are at the same address in Huntington Beach, California. Steven Covey, Edwin Lichtig, and Rex Hofelter are associated with the defendants, which together are a successor to Structured Investments Co. LLC. The latter company was mentioned in my October 2011 article. Here is a lightly edited version of some of the allegations in the complaint:

  • Defendants said they transacted pension buyouts and advanced the cash when needed. They said a pension buyout was not a pension loan but rather was a pension lump sum.
  • Defendants denied their product was a loan, and they did not disclose fees or interest rates.
  • Defendants claimed the cost to consumers could be as little as 13 percent and contrasted their product with credit cards charging 18 to 24 percent or more per year in compound interest.
  • Defendants said their product was not a loan and there was no interest rate.
  • Defendants said that there was no interest because their program was not a loan, and that their "range" was a cost of money rate or a discount rate.
  • Defendants compared the discount rate to a typical mortgage and claimed participants paid approximately the same or less than credit card rates and not the highest rates.
  • The complaint says that the transactions on average had an effective annual interest rate of 28.56 percent, and that the transactions with New York consumers consistently had nominal annual interest rates in excess of both the New York civil usury cap of 16 percent and the New York criminal usury cap of 25 percent.

The seven counts in the complaint are unfair acts or practices in violation of the federal Consumer Financial Protection Act of 2010 (CFPA), deceptive acts or practices in violation of CFPA, abusive acts or practices in violation of CFPA, usury, false and misleading advertising of loans, intentional misrepresentation of a material fact regarding a financial product, and unlicensed money transmitting. The plaintiffs seek injunctive relief, damages, redress to harmed consumers, disgorgement, civil monetary penalties, and costs.

General Observations
In my 2011 articles, I deplored the lack of disclosure of vital information to the annuitant, especially what I called the "crucial disclosure" of the annual interest rate or annual percentage rate associated with the transaction. I also mentioned the absurd argument that paying cash to an annuitant in exchange for receiving the annuitant's annuity payments does not constitute a loan to the annuitant. As shown above, the defendants said such a transaction was not a loan and there was no interest, but also mentioned interest and understated the interest rate.

Available Material
I am offering a complimentary 29-page PDF consisting of the 24-page CFPB/DFS complaint, my three-page August 2011 article, and my two-page October 2011 article. Send an e-mail to and ask for the package relating to the CFPB/DFS lawsuit against two annuity factoring companies.